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Budget 03: More challenges ahead... - Views on News from Equitymaster
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  • Dec 10, 2001

    Budget 03: More challenges ahead...

    With barely 3 months left before Mr. Sinha delivers a set of yet another promises in his third budget, the finance minister seems to be sending some confusing signals. While at times he is concerned about the fiscal deficit situation, the next day, he informs corporate bigwigs that he was ready to ignore fiscal deficit if it is able to help him in logging strong GDP growth rates.

    Though, the intention of the FM was to reassure an economy that is struggling to stave off a recession, he somehow fails to realize that practically he has already ignored the fiscal deficit. Net tax revenues up to the end of October amounted to a modest 39% of the budgeted Rs 1,630 bn. On the borrowing front, the government has already completed 91% of its budgeted borrowings. It is almost certain that the government would overshoot the fiscal deficit target of 4.7% of the GDP this fiscal. The slippage therefore seems inevitable even without the pump-priming measures promised to reverse the current economic slowdown.

    More interesting is the talk of the center going in for extra plan spending over and above the budgeted level despite the total plan expenditure during April-October'01, at Rs 458 bn, being just 48% of the budgeted Rs 951 bn. In other words, the various ministries have not been able to spend even the plan amounts allocated to them. It remains to be seen how pump priming would be possible when the center doesn't seem to have the capability to spend even what was originally allotted. The ministries may not really be in a position suddenly to step up their plan spending given that a host of clearances are required to have the monies released.

    If the fiscal deficit has been widening, it is because revenue flows have been sluggish. For the record, the FM still hopes to meet the budgeted direct tax collections of Rs 848 bn, expecting a higher mop up from the third and fourth installment of advance tax. But with the corporate sector finding it hard to maintain profitability the taxman will not have it easy. Customs revenue is still way below the current year's target mainly because of the decline in the oil import bill following the softening of international crude prices. Excise collections too may not reach the budgeted target of Rs 817 bn given the wide slippages in industrial production.

    Mr. Sinha's budget assumes all the more significance considering the fact the current year would be taken as the base year for the tenth five year plan envisaged for the five year period starting April'02.

    Over the last 3 budgets, the finance ministry has shown his bias towards kick starting second-generation reforms. However, not much has actually fructified. Mr. Sinha has no doubt achieved some success in streamlining the tax structure to a large extent and marginal success in kick starting labour reforms. But not much headway has been achieved in terms of GDP growth with the same languishing much below the Ninth five-year plan's target. Both private and public investment remains at abysmally low levels. The performance on the optimistic divestment target of the government in ninth five-year plan can be termed as 'pathetic'.

    On the other hand, overall corporate sector still doesn't seem to be comfortable to take on global competition even after a decade of liberlisation. Private investment just does not seem to be picking up due to a lack of confidence in new ventures.

    After 2 years of significant drop in GDP growth, the challenge before the FM is to implement the so-called second-generation reforms. Otherwise, the tenth five-year plan would also be more dreams, less reality.



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